China widens yuan trading band
(AFP)
Updated: 2005-09-24 08:51

"The US will welcome China's move but then say let's hope you can do more in the future," said Qu Hongbin, a China economist at HSBC in Hong Kong.

"There is a need to make this move so that it would prepare the system to cope with major US dollar fluctuations in the market," said Qu.

"It could lead people to think that it's a gesture and the trouble with doing that is that you'll build up expectations."

Beijing staged a 2.1 percent revaluation on July 21, when it delinked the currency from a peg of 8.28 yuan to the dollar and placed it a basket to several major currencies.

It came after more than two years of accusations from Brussels, Tokyo and particularly Washington that the undervalued currency was upsetting the balance of trade.

Although the US and trading partners have since toned down their rhetoric, they have made it clear that they expect Beijing to move apace with further currency reforms.

European Central Bank President Jean-Claude Trichet said last week the G7 meeting will discuss exchange rates and that the G7 nations -- Britain, Canada, France, Germany, Italy, Japan and the United States -- want further orderly appreciation of some Asian currencies.

"Our main message collectively is certainly to call for a certain and smooth and orderly appreciation of the exchange rates of a number of Asian emerging currencies," Trichet said.

Standard Chartered economist Tan Hui said that while the change would help China to better manage its currency regime it is unlikely to have any real impact.

"Frankly it's a bit of a non-event -- it's not against the dollar, it's against the other currencies," Tan said.

In the statement, the central bank also said the yuan-dollar trading band for retail transactions had been widened to one percent from 0.2 percent with immediate effect.

The yuan-dollar trading band on the interbank market remains unchanged at 0.3 percent while the retail yuan-dollar trading band for cash transactions had been widened to four percent, up from one percent.